The Case for Meta-economics Pt. 3: Relationship between Popular Economics and Professional Economics

While there is a good deal of debate about whether economics or for that matter any of the social sciences, are truly sciences, professional economics both within the academy and outside the academy is different from what might be called “folk theories” of economics. In philosophy of mind, “folk theories of mind” are how ordinary people experience their own minds and their theories about the minds of other people. A “folk theory” is distinguished from a scientific theory of the brain or consciousness. While the notion of a “folk theory” is slightly patronizing, the distinction between folk and scientific theories is critical for the study of the human mind/brain because the experience of having a mind or cultural or personal self-reflection on the experience of having a mind is different than studying the mind/brain as a scientist; “folk theories” are just as important, if not more important than scientific theories when dealing with human experience.

What I am calling “popular economics” is the broad range of ideas about economics, “folk theories”, that are not part of the sanctioned core of professional economics, as diverse and conflictual as that body of knowledge might be. As in “folk theories” of the mind, popular economics is for the most part the practical, “business end” of economics, as much as that may dismay professional and academic economists.

In practice, people in the economy are using what they believe to be their own or someone else’s economic wisdom to make decisions and act millions of times a day, around the world. While the practical disciplines of accounting and the some of the basic tools of corporate and public finance are fairly well systematized/controlled and not necessarily professional economics, there exists a broad range of thinking and acting about the economy inside and outside of businesses and government that is informed by personal theories about how the economy works, without the legally binding controls associated with accountancy and the “boring” part of corporate and public finance. These personal theories are sometimes in dialogue with but not identical with the body of work recognized as professional or academic economics but there are also some truly “folk” economic theories that arise from people’s experience and which bear only tangential relationship to the professional variety. For instance, a businessman might act according to the principle “give people a good deal and great service, and they will come back for more”. This might not accord with what his accountant is telling him or what a professional economist might tell him but this is one of millions of potential popular or folk economic theories.

As with popular vs. scientific theories of mind, popular economics can never be replaced by professional economics for a number of reasons:

Much of what is produced in professional economics is hard to understand without at least an undergraduate if not a graduate education in economics; perhaps this is a sign of weakness in professional economics but it may also be that there are some concepts that require abstract reasoning and mathematical understanding which is not a strength for many people.

People are always going to have slightly different perspectives on certain economic phenomena that are not easily reducible to the rules of, for instance, accounting, which has a system of controls in it to make sure that the rules are followed (when these controls do not fail). The dynamism of society has a lot to do with the ability of the human mind to take different perspectives on physical and social reality, which itself is also dynamic and changing beyond our ability to completely grasp what is going on. So popular economics has a dynamism that perhaps is not completely compatible with a rigidly organized body of knowledge.

Thirdly, and this is more of a flaw than a feature of professional economics, economic theories have had both acknowledged and unacknowledged flaws that make them less useful than they might be otherwise. So popular economics, in addition to accounting and uncontroversial parts of corporate and public finance, have had to step into the breach to make practical rules where the major economic frameworks have nothing to say.

Economists and social scientists have also been interested to understand how the formal study of economics effects both views of the economy and views of society and human nature, i.e. how popular economics and the study of professional economics interact. There have been studies that correlate the undergraduate study of economics with more stereotypically self-interested behavior in the game called the prisoner’s dilemma. A recent study by the New York Federal Reserve of graduate and undergraduate economics students, (referenced by James Kwak on Baseline Scenario also with interesting comments by readers there) shows that undergraduate study of economics in the US correlates with subscribing to a schematic endorsement of stereotypically neoclassical economic views on economics that are now associated with the political Right. The same study found that graduate study is correlated with more nuanced and less Right-leaning views of some but not all of these issues. Formally, the views of the latter must be considered part of professional economics.

Politics, Policymakers, and Popular Economics

One massively important subsection of popular economics is the relationship of politics and economics. Like it or not, how governments act effects the economy enormously but these actors are not transmitting and instituting the exact dictates of a scientific consensus in the admittedly fractious discipline of economics. The original name for economics in the 18th and 19th Centuries was political economy and some professional economists and academic institutions continue to use this name as a reminder of the importance of the relationship between politics in governments and economics. There are three main types of popular economics as it relates to politics: the personal theories and preferences of political leaders as regards economics, the theory of the economy embedded in standing laws and in policy proposals, and voters’/citizens’ views of economics as it relates to politics. Professional economists can be employed by governments, political pressure groups, and political parties but these will often be selected to mesh with the general concerns of that group. In this way, the popular economic “tail” can wag the professional economic “dog”.

In the United States as well as a number of other developed nations, popular economics as it relates to politics can be divided into two basic tendencies: those who believe that the government should intervene in the economy in favor of interests of the less powerful and the non-human environment and those who believe the government should not intervene much at all in a redistributive or protective way in the functioning of the domestic economy. Generally the probability of one individual or another holding one or the other of these popular economic theories are based on that individuals’ perceptions of their life experiences and/or their perceptions of how they, their families and their friends might best gain from different economic policy regimes.

While these two main political tendencies are related to how policymakers might make actual policy, their views are still a more complex blend of professed loyalty and their own actual personal/popular economics in practice. A policymaker can profess to subscribe to one or the other of general popular economic theories in order to win votes and get elected while, in office, proposing and voting on legislation that in some ways contradicts those professed views. For instance a policymaker can claim to believe that government is for protecting the less fortunate and the environment but in actual fact tend to support bills and executive orders that for the most part serve the interests of the already rich and powerful. Currently disappointed left of center critics of the Obama Administration believe that this last characterizes many of his initiatives to date. Or another policymaker can profess to believe that government should not intervene in the private sector and should become smaller as an institution but end up in practice intervening in the private economy (perhaps in favor of established business interests) and expand government in other ways. Professed libertarians and those on the conservative Right who would like to disown the policies and politics of the 2001-2009 Bush Administration hold the latter view of that Administration.

Crises and unforeseen events can further complicate how economic policy is made. A government executive or ruling party has a particular set of economic preferences which will interact with the news from a crisis in distinct ways. Selected professional economists will help interpret that crisis which may help justify the already mentioned “disappointments” of expectation of that might occur within the term of an office holder. The policymaker may point to the professional economists as “bad cops” which are forcing his or her hand to disappoint the political base of the party. The selection of these professional economists or pundits will itself help pre-condition this turn of events.

Popular Economics and Policy: The Case of Former Senator and Deficit Commission Chair Alan Simpson

In the last few days, the video below of former Senator Alan Simpson (Republican) of Wyoming has been posted with commentary on a number of sites. President Obama appointed Simpson as one of two chairs of the National Commission on Fiscal Responsibility and Reform (a.k.a. “Deficit Commission”). While Simpson is not formally a policymaker anymore, he has arrived at a position of probably even greater power and less accountability in being named to the Deficit Commission by Obama than he had as a sitting Senator.

In viewing this video, you will note that there is real difference of economic opinion between Simpson and the interviewer, Alex Lawson of the Social Security advocacy organization Social Security Works. Neither Lawson nor Simpson are professional economists and they both show signs of having very different popular economic views of at least the state of Social Security if not some other issues related to the expenditure of government money. Simpson, in a position of a great deal of influence, seems to have some interesting ideas about how revenue collection for the Social Security system works and, beyond his generally irascible self-presentation, makes statements that are under dispute by a number of commentators:

He claims that Social Security planners had not already anticipated the baby boom retirees (they had but the funds collected had been misappropriated)

He claims that they had not already anticipated our current life expectancies (they had)

He wishes to look away from the three main reasons why the Social Security fund will reach a point in 2037 in which might require cuts without new revenue (tax cuts mostly benefiting the wealthy, unit costs of health care in the US vs. other industrialized nations, and war spending)

He claims that he wants to maintain solvency of Social Security and the government without referring to new or restored revenue sources

The solution he seems to favor involves cutting Social Security and Medicare benefits (he doesn’t mention any others)

Some of these claims are poorly substantiated, partial to solution favoring the wealthy over the “lesser people” (Simpson quote), and assume an unbelievable incompetence among government demographers and economists for at least four decades. But whatever their basis in facts or the type of opinions he favors, Simpson is definitely not held to any scientific or academic standards of source verification (which are not guarantees either) or consistency: his assertions are definitely a form of popular economics. He might be able to find some professional economists to support his view but that doesn’t, for the purposes of establishing the importance of popular economic views in politics, negate the fact that his is a popular economics.

His interviewer in the video, as well as the critics of Simpson’s views have different conceptions of what is right for the economy and do not see cutting Social Security as an inevitability as Simpson seems to feel. One could say that Lawson’s implied solutions in his questioning are another set of popular economic views with perhaps more or less grounding in data but also with no doubt a different perspective on the distribution of economic benefits and costs in society. Some of these critics are professional economists like Paul Krugman and Dean Baker, who would no doubt be joined by others.

While selecting Simpson’s views so openly displayed in such an unvarnished form may undermine the point I am making, politicians and political pundits will more often than not be operating with their own personal/popular economic theories for which they may or may not mobilize professional economists to either rubber-stamp their views or work with independent economic advisors with differing views from their own to whom they may or may not listen. Already the Peterson Institute that is heavily in favor of cutting social spending as a means of deficit reduction, has attempted to distance itself from Simpson, in an effort the preserve the appearance that its focus on cutting social spending is justified by professional, “scientific” economics.

Popular Economics and the Science Question

What I have been calling here “professional economics” has the ambition to be a science based on objective findings about the state of the economy and likely future trajectories of that economy. These claims to science are not loudly trumpeted given the diversity of opinion within professional economics. While professional economics operates under greater constraint than popular economics and represents a narrower band of opinion, those who hold popular economic views of various sorts can find professional economists who back up their views to a greater or lesser extent.

While there are a number of established definitions of the scientific method, many assume that in science there can be universal agreement between reasonable observers about at least the facts if not the interpretation of those facts (though heterodox and post-modern theorists of science have questioned this). In the case of Simpson and Lawson, though neither are professional economists, they do agree that revenues from Social Security have been used for other purposes though they don’t agree on what those purposes were and on what would be the responses to that borrowing. Perhaps some facts can be agreed upon by all observers in this case but others will be disputed.

I will be returning on this blog numerous times to the question of and desirability of having an economic science. Certainly there are areas of economics where there can be agreement about the facts but how large is this area? Does it make sense to call the areas in which there is not agreement about facts, also parts of a science? Should those contested areas be sectioned off? Isn’t the process of examining those disagreements as important as looking at areas of agreement?

If economics is not just a science but an arena within which shared and conflicting self-interests are fought over and re-negotiated, then validating a role of more or less importance for something like popular economics is also crucial. Also economics might also be an arena in which new designs for as yet non-existent economic processes are presented and argued over. Without the ability to “speak” on issues that effect one’s self-interest or potential future designs for the economy or economic policy cannot be discussed, this leaves people and potential improvement out of the discussion. On the other hand, if these personal economic views, especially those of policymakers, are largely divorced from something like an objective or at least highly likely reality, this can create a great deal of economic pain and suffering.

I am suggesting that meta-economics or a similar concept can function as an inclusive framework to include both scientific and popular economics as well as examine where agreement is possible and where and how disagreement about economic processes emerges. As we have seen that economics and popular economic theories by those in government can have extraordinary consequential effects in the real world, such a framework is not simply of speculative interest.